Kirby Corp. CEO Joe Pyne is "No Ordinary Joe"

When Joseph H. Pyne joined Dixie Carriers in 1978, little did he know the maritime juggernaut he would help to create. When he took over as president in 1984, the company owned about 20 boats and 50 barges, with a value of about $35m. Today, after nearly 30 years, 50 acquisitions, it has a market cap well in excess of $4B, and its fleet hovers around 350 boats and 950 barges, commanding approximately 35% of the U.S. market. Joseph H. Pyne, 65, recently spent some time with Maritime Reporter & Engineering News in his beloved Maine to reflect on the evolution and future direction of Kirby Corporation.

By Greg Trauthwein, Editor

Assuming that as a young boy growing up in Maine you did not dream of become the CEO of a marine transportation company, can you tell us how you came to your career?

    I grew up in Bremen, Maine, on the coast and a very rural part of Maine. We had a summer home which my grandfather built on an island off the coast. As a child, I would have to go by boat everywhere … to see my friends, to get a soda … everything was on the water. Then I went on to Tabor Academy which was in Marion, Mass., and also on the water. After I graduated from North Carolina I joined the Navy and was in for almost eight years. As I transitioned out of the Navy, I was trying to figure out how I could apply the skill sets I had acquired to something where I could make money. Back then (the late 1970s) the marine industry had moved south, principally in the Gulf of Mexico. I had some other peculiar skill sets in that I was a Navy diver, running one of their saturation systems. I came to places like Houston and New Orleans and met with many companies, one of which was Kirby, which back then was an oil & gas exploration company with a small marine subsidiary called Dixie Carriers, then a $30-40m business. I joined Dixie Carriers in February of 1978, which was a wholly owned subsidiary of Kirby.

Did you start at the top?

    No. I had a variety of roles at Dixie Carriers, starting out as a project engineer, then moved to human resources, then to safety and operations, and I was named president in 1984. At this time the company was about $35m in revenue, 150 employees and maybe 18-20 boats and 40-50 barges.

How would you describe the business during this period?

    This was in the middle of a very difficult time in the business, as they (like many others) had overbuilt. But you could see that this is a great business, a business that is fundamentally important to the U.S. economy. It is the best and the safest way to move bulk products throughout this country. The inland waterway system is a magnificent transportation system, perfectly located through the center of the country which really connects the heartland to the world. We were principally a liquid carrier back then, and the liquid business, particularly the chemical business lends itself to water transportation. Given that this was a fundamentally important business, one that wasn’t going to go away. It was apparent to me that if you had the vision and the means, you could grow that business into a super franchise.

So it was smooth sailing from there?

    Not exactly. The parent company (not the barge line) had some financial trouble back then, because simply they weren’t really successful in finding oil and gas. In 1987 the board made the decision to get out of the oil and gas business and focus on the transportation business.
That’s when we began to grow. After 50 acquisitions and a lot of hard work from a group of great people, we’re where we are today: about 350 inland towboats and tugboats and 950 offshore tank barges, and we employ about 4,600, which includes about 2,600 seamen and staff in our diesel engine business.

People are often touted as a company’s most valuable assets. Your thoughts?
   
    The heart of the company are the employees. They see the customers more, they spend the money, they’re the ones that deliver the service. A lot of our success is recognizing that we are not just a marine transportation company. We are a service company that uses marine assets to do what our customers pay us to do: move their product safely and reliably.
 

This marine business is a funny one, in that it is critically essential to U.S. commerce, but it often does not get its public and political due. How can this change?

    To put it in perspective, maritime is a small part of the overall transportation system in terms of revenue and in terms of the number of vessels. However, the magnitude of what we move is significant. When you are such a small part of the transportation system it can be hard to get people’s attention. Where you do get some attention, for example, was during last year’s drought when commerce was getting ready to stop (due to low water levels). 

The U.S. Coast Guard Foundation is set to honor you next month in New York. When you consider this award, what in your mind makes it special or unique?

    I generally don’t do these kinds of things. I get many requests to do these executive interviews and I turn them down, because it really is not about me. I don’t want this to sound trite, because it isn’t: Companies are successful because you have a bunch of people pulling their oars at the same time. They do the little things more right. That requires everybody working to make it successful. I’ve been the leader for awhile, and it’s a great honor, but it’s not about me. It’s about the success of an organization and the people that make up that organization working hard every day. When I look at accepting this award, it is really for Kirby; it is Joe Pyne and the Kirby Corporation; I’m representing Kirby.
I’ve only done this one other time, and that’s with the Seaman’s Church Institute, and that’s because I believe in what they do. The Coast Guard Foundation is really pretty easy too. What you’re doing is helping people, particularly in a period where Congress isn’t funding some of the basic needs of that organization. I spent the early part of the summer touring Northern New England stations with a couple of Foundation Board members, seeing some of the stations, the communities they are in, their role in those communities and what they do for the mariner. (Many of them are) in the middle of nowhere and don’t have some of the tools to make their life a little easier. Given that, it is pretty easy to get out your checkbook and help this organization.
Frankly I had resisted getting involved in the Coast Guard Foundation for years, because you’re so busy and when you get involved in something you either do it or you don’t; you don’t want to do it just to have your name on it. When I got more active and had a better understanding of what it does I became very enthusiastic about it, and I can see myself continuing.

When you wake up every day and you assess the business that you’re in and the goals you set, what is the biggest challenge, in your mind, to running an efficient, safe and profitable business?

    Remember that you’ve got close to 350 mobile worksites stretched from Hawaii to Maine; Brownsville to Pittsburgh. No other marine transportation company has this geographic scope or complexity as Kirby. We’re moving chemicals, we’re moving refined products, we’re moving black oil … all of things that nobody wants compromised.
But the thing I worry about most is an operating incident. We have been very fortunate to not have many, particularly when considering the number of moving parts that we have. The challenge is to really getting the message – and the procedures and the processes that accompanies that message – down to the people that implement the service we provide. From the captain to the deckhand, we want to do it right, safely and reliably. That’s easy to say, harder to do
People need to be properly trained, so we have a very extensive training process at Kirby. I think probably that we are the only company in our business that can issue a certificate at our training center for all of the licenses that we need in our fleet. We spend a lot of money on training, and it is worthwhile.
If anything keeps me up at night, it’s something that’s going to happen out there that’s going to affect a person or the environment.

How would you best describe your management philosophy?
 
    It’s hard to succinctly describe a philosophy. What I tell people: “When in doubt, do the right thing.” I think what’s made Kirby successful is that we’re very disciplined in the way we invest; we’re trying to get a 12% return on capital over the business cycle; when you make a capital mistake it lives with you forever; we’re patient investors; we think that the market and your balance sheet will tell you what you need to do. There will be times when it makes sense to buy, like the last 24 months in the offshore space, where we went from essentially a zero market share to a 30% market share
There are times when it says that these assets are too expensive you don’t want to buy them, you want to add capacity, and we’re probably entering in that period now. You’ll probably see us add some capacity offshore, and we’ve already added a little inland already. There are times that you look at your balance sheet and it’s a little over leveraged and you want to focus on paying down debt; as a public company there are times when it is apparent that your stock is undervalued and you want to buy that stock back.
I’ve never thought of Kirby as being just an owner of marine assets, I’ve thought of Kirby as a service company that uses marine assets to provide a service that our customer pays us for. Our ego really isn’t tied up in the number of assets that we own or the size of them, it’s about servicing the customer.
What we’re looking for is a long term relationship that can go on for many years, that can be codified in a contract that continues to get renewed. At the end of the day, you want to be a part of that supply chain. Another thing we say is that we make decisions in this company as if we are managing it into perpetuity. So that drives the development of talent, that drives succession, it drives investment in fleet, people, training and support. It really isn’t about how big is the biggest barge; it’s about how you use the equipment and the people to give your customer something they need.

The Maritime business is a hard cyclical business …

    Well I like cycles!

But can you put in perspective for me the recent economic crisis and fall out, and how it has fundamentally changed Kirby.

    Remember that when I started to run Dixie Carriers, business was a lot worse than it ever was in 2008. The business collapsed. With challenge comes opportunity. Cycles create wonderful buying opportunities, and for a company that has grown through acquisition, we see those as opportunities.
    We didn’t see the financial collapse, but we did see that the path we were on was unsustainable, so we started to prepare for the end of this run; we had contingency plans in place that would take costs out of the business and scrap vessels. So when it happened in 2008, we were prepared. For the first time in my business career I had a consultant come in to challenge us, to make sure we were considering all of the right things. They did a really good job of that; we probably would have gotten two-thirds or three-quarters, but they got us all the way there.

So what was the strategy?

    In 2008 and 2009 we took about 20% of our G&A out, and while our revenue went down, our margins went up. Part of that is due to how quickly we took some costs out of the business; part of that is we extended some contracts, and shuffled our spot to contract mix from about 70% contract to 80% contract. The result: coming out, we had a clean balance sheet … we didn’t have any debt; we had cash on our balance sheet, and we had the opportunity to buy a significant diesel engine company, we bought KSea in 2011 and we were able to buy Allied and Penn Maritime. For us, that was kind of the normal business cycle that creates opportunity. Someone once told me that when business is bad, it’s never going to get any better, and that when business is good, it’s never going to get bad; I’ve always been somewhat of a contrarian: when business gets really good I get nervous and when it gets really bad I get excited!

Did the fast change in the energy profile of the U.S. take you by surprise?

    Three or four years ago, as you’ll see in our public comments, it was clear to us that natural gas would be a real game changer. What we didn’t predict was the liquids that would come out of it.
The collapse of natural gas prices conspired to rejuvenate the petrochemical business, whereas people were talking about closing plants, they talked about building them. 

New regulation is a fact of any industry. Today, are there  any new rules and regulations coming down that you find tricky and/or troubling?

    The best is to take a deep breath and accept it, because it’s going to happen. Our strategy on regulation is to understand it, try to influence it in a positive way. We actually think that new regulation helps to level the playing field, because it’s going to be easier on a company like Kirby.
I worry not so much about regulations that can impact us, I think I’m more concerned about regulation or policy that can be implemented on our customers. Regulations that change the competitiveness of the chemical or refining business would be detrimental to us because it would in turn reduce volumes that we carry. The energy and chemical renaissance that is occurring, principally because of the liquids that come out of shale deposits and natural gas, is very good for us. It went from a relatively mature business to one that is growing.

Which regulation(s) do you think has been the most positive impact on the market, on your business?
   
    I think the Oil Pollution Act of 1990 had a positive effect in significantly reducing spills and that’s good for society, the environment and business. I think the vapor control regulations in the handling and disposal, keeping them away from people, are positive.
As I already said, I don’t think all regulation is necessarily bad. There are plenty of examples of bad regulations, where you have no idea of the consequences. We are regulated for some pretty specific things, and for the most part I don’t think they have been particularly harmful. They do increase your costs a little bit, but they increase everyone’s costs.
Where they have been problematic is when they take one specific incident and try to build regulation to avoid that incident. OPA 90 is an example of that, but I think that ended up being OK.
The Sarbanes-Oxley Act for a public company is a response to Enron. Some of that is good, some of that is not very good, and a lot of it for a company like Kirby, we did it anyway. You’re trying to regulate the bad actors, and what you’re doing is imposing costs on all of industry, even the guys who are doing it right.

Your business depends on several things that are out of your control, from Mother Nature to  waterways infrastructure. From where you sit, what are the most critical waterways infrastructure issues that must be resolved?

    It’s on the inland side of the system and it’s the locks and dams. Many are more than 50 years old, and they simply require investment, as you are now starting to see some failures. Having said that, we have been working with the Corps of Engineers on a plan to reinvest in the infrastructure, including a funding plan, as the industry has agreed to pay increased user fees, an agreement  that prioritizes the projects and finishes some of the ones that have languished. I’ll feel a lot better if we can get that through Congress.

Politics, funding, diverse initiatives: is it harder to get things  done today?
   
    It is harder, and I think it is going to get even harder. We’ve run out of money. We had the opportunity to fund a lot of this in the Stimulus Bill early in the Obama Administration and we didn’t do that. I look at infrastructure as an investment: it facilitates commerce, it makes things more efficient, it encourages development, it helps the country be more competitive. But it goes beyond the waterways. We need investment in highways and bridges too. We have a real problem, as we had a world-class infrastructure system 30 or 40 years ago, but today while it is not second class, but it is not world class.

Technology is a popular topic in our pages, print and electronic. When you look at technology, what do you credit with making your business more safe and efficient.

    Technology is a double edge sword. In some business, technology renders you obsolete, and in our business it really doesn’t do that. I think in our business it makes us safer, but truthfully I think the real key to safety is how you manage it, as some 80 percent of accidents are due to human error. Some of the navigation systems and electronics have helped tremendously. Computer based training has certainly helped. But the most important thing you can do to make someone safe is to make safety the number one priority at the senior level of the company, and to take responsibility for it, and force the management team to in turn accept that same responsibility down to the captain through the deck hand.
All of the new technology helps, from the electronics to the alarms to the sensors that measure vapor levels, but all of the technology in the world doesn’t replace taking personal responsibility for making safety a priority, starting at the top.  You can delegate authority, not responsibility. We think safety is not only the right thing to do, but it is also great business.

Kirby historically has been a driver for consolidation. Is there more room for consolidation?

    I think it is probably good for transportation safety that you have a more professional approach to the business. It’s a very entrepreneurial business, which makes it great. It is sometimes very hard to pass that down to the next generation. I think it is going to continue to consolidate; I think we’ll continue to consolidate. I have said that I think that we can get close to 40% of the market in both the inland and the offshore market. We’ve been as high as 35% on the inland business (based on the number of vessels).

You have spoken often about the value of the people who work for the company. What do you do as a company to attract and retain the people that you want?

    Regarding the boat organization, what we’ve found is bringing people in early, taking them through our training process, and showing them how they have a career here, paying them fairly and being consistent. That’s the secret to retaining them. You want them from the start and to be a part of your team forever. With our on-shore staff, we don’t have a lot of turnover. For the most part they stay with us, and it’s important to compensate them fairly. People need to feel like you are being fair with them.

The amount of training required for the mariner has ramped up steadily over the past decade. What is the value of your in-house training facility?

    The only significant outside resource we use is the Seaman’s Church Towboat simulator in Houston. We use it, but it’s our instructors that teach. I think if you can bring someone in from high school, for example, and bring them through your training system, it helps to reinforce the company culture. You put them in the fleet for six months, bring them back in for more training to not only reinforce the culture but give to them an additional skill set, I think you not only have a much better chance of keeping the individual, but you have someone who really understands what you are about.
   
Have you investigated incorporation of LNG as Fuel onto your fleet. What do you think will be the impetus to make this a more standard option on the waterways?

    The answer is yes, because the cost savings appear to be compelling. From a technology perspective I’m not sure that we have really figured out how to do it. The vessels are going to be more expensive, and how you store LNG on a vessel is problematic. Intuitively what I think is going to happen is that the industry is going to be slow to get there, and it’s going to be dual fuel, it’s not going to be strictly LNG at first. There is going to need to be a confidence that crude oil isn’t going to collapse. The only reason this works is on a BTU basis. I personally think that we are going to get there. I think the pricing differential for the next 20 years are probably sustainable; the economics are compelling. The challenge: Are you going to replace all of your towboats? I don’t think so. We’re going to have to figure out how you convert diesel powered vessels to LNG powered vessels, storing the fuel either in a barge that’s ahead of the tow or sponsons on the side of the towboat. 

Where do you see future growth?

    I think there are some opportunities for us everywhere, because we are in all of the markets. We would find consolidation attractive in almost any geographic area. We’re not looking for another geography; for the U.S. flag we are in all of them.

Looking back at your career, of what are you most proud?
   
    The people that I’ve had the opportunity to work with that have built with me a really great company that focuses on the right things. It has been successful in terms of building shareholder value, in terms of building revenue and reputation. It’s not about me; it’s not about an individual; great companies have great cultures, and a great culture is one that allows everyone to contribute to a company’s success.

USCGF to Honor Pyne

The Coast Guard Foundation said that its 33rd annual Salute to the United States Coast Guard will take place on Thursday, October 10, 2013 in New York City. The event honors the bravery and heroism of U.S. Coast Guard members across the country and pay special tribute to Joseph Pyne of Kirby Corporation for his strong support of the Foundation, and its programs and projects that benefit the Coast Guard and its service members. “Mr. Pyne and Kirby Corporation have answered the call to support the Coast Guard Foundation for more than 30 years,” said Anne Brengle, president, Coast Guard Foundation.
coastguardfoundation.org

“It is pretty easy to get out your checkbook and help this organization.  Frankly I had resisted getting involved in the Coast Guard Foundation for years, because you’re so busy and when you get involved in something you either do it or you don’t; you don’t want to do it just to have your name on it. When I got more active and had a better understanding of what it does I became very enthusiastic about it, and I can see myself continuing.”
Joseph Pyne, Kirby Corp.



(As published in the September 2013 edition of Maritime Reporter & Engineering News - www.marinelink.com)